A proposed implementation of the Volcker Rule may have passed a Commodity Futures Trading Commission vote on Wednesday, but two Commissioners and a handful of market participants are questioning the timing and form of the proposals.
Republican Commissioners Scott O’Malia and Jill Sommers ripped the proposed rule, with Sommers specifically expressing reservations that the CFTC did not join other prudential regulators, namely the Federal Deposit Insurance Corp. and the Federal Reserve Board, when they issued a proposed Joint Volcker Rule back in October. “It certainly should not have come as a surprise to us last summer and early fall that the other agencies were getting close to being ready to issue their proposal,” she said in an opening statement on Wednesday. “Unfortunately, we are proposing rules that are virtually identical to the other agencies’ proposed rules well after they have been widely criticized and after many have called for those agencies to start over, including Paul Volcker.”
As Sommers seems prepared to admit and as one lawyer in New York put it, the CFTC’s approval of the Volcker proposal yesterday looks akin to a student scratching the name off the top of the page and submitting a term paper as his/her own.
Unfortunately for them, within the context of this analogy, the paper itself appears to have earned no better than a C grade. Sheila Bair, former acting chairman of the CFTC and former chairman of the FDIC, called the Joint Proposal from October a “Rube Goldberg contraption of regulation.” Sommers called the approved version of the CFTC’s Proposed Rule “likely unworkable,” while O’Malia devoted an entire second speech to his concerns regarding the proposal. In it, he criticized the complexity, enforceability, self-reporting compliance, and lack of respect for other regulatory jurisdictions within the proposed rule.
In general, the Volcker Rule prohibits banks from trading securities and derivatives on the banks’ own accounts, as well as prohibiting banks from investing in hedge funds and private equity funds. The Joint Volcker Rule published in October will be open for comment until Feb. 13. The CFTC’s rule, which passed Wednesday by a vote of 3-2 with Sommers and O’Malia dissenting, will receive a 60-day comment period once it is published in the Federal Register.